Saturday, December 18, 2004

Taxing land, as opposed to taxing all property, is said by the disciples of Henry George to be the key to urban renewal and many of our economic justice problems. What they said was very appealing from a simple fairness standpoint, but I didn't understand how it would be implemented. This article by Mike Curtis makes it much clearer to me:

Consider this example. You are looking to buy a house. Suppose that only within the city limits there is a wage tax of 5 per cent. Would you pay as much for a house within the city as the same house outside the city limits? No, but the house costs as much to build, no matter where it's located, so the tax on wages reduces the value of land.

Suppose you live in the suburbs. Would you consider a job in the same city at 5 per cent less take-home pay? (Some cities, such as New York or Philadelphia, levy a wage tax on all people who live and work there.) All other things being equal, you would not; therefore, the employer has to compensate with higher wages or accept a less productive worker. Either way, the tax adds to the cost of production. However, the building and other costs of production remain the same, so the tax diminishes the value of the location. All confiscatory taxes diminish the value of land.

Curtis later provides an example of how the land tax, and eliminating all other taxes, would work. Highly recommended article.